tv Bloomberg Markets Americas Bloomberg October 11, 2016 10:00am-11:01am EDT
vonnie: we take you from washington to south korea and cover stories out of london, and are in south africa in the next hour. samsung is killing off its note 7 smartphone. south africa's rand tumbling the most since june. a future credit rating downgrade. cooperman joins bloomberg television and radio this hour. one of the world's best known hedge fund managers addresses insider trading allegations and how big of an impact it's having on business.
about 30 minutes into the trading day. let's get the latest from our markets expert. julie: seeing stocks tumble today, accelerating declines since the opening bell. we are seeing rate expectations ratchet up, one of the things pushing pressure on stocks. recently come we've already seen this rate expectations rising and it has not always caused a decline in stocks. the big corporate story we are following today is samsung entirely killing its galaxy note 7 because of those fires that were originally associated with the battery. even after the company changed battery suppliers, the fires continued. left without its high-end smart phone to compete with the iphone. shares in asian trading from apple shares getting a lift of 1.5% this morning.
let's get to rates. six basisr note points is the game we are seeing. the 10 year yield is at the highest since june. , thist fed funds futures is the probability being priced into fed funds futures of an increase at the december meeting. climbing climbing and and climbing, now at 67%. very high likelihood of being priced and. likelihood being priced in. this is the 200 day moving average, sits up in a tight range here going back to may. now, we have seen it breakout above that 200 day moving average. momentum indicator. we have to talk about the south african rand. this is the u.s. dollars move against the rand.
this is on the news that the country's finance minister was summoned to appear in court on fraud charges . -- fraud charges next month. ask: we've been up as much .3%. we are little changed, but down for the fourth day in five. that sums up what's happening today. in london, we've seen the ftse pass its all-time closing high. 7103, that was the closing high of april of last year. now, 7087, below the closing high. we rose above it yesterday as well. we are finding it difficult to close above. we are below what would be the record close for the ftse. the small cap is at a record
today as well. these are the main assets since the referendum. the ftse 250 at a record last week. gilt was the main performing asset in august. the bond index rose to a record, no underperforming -- now underperforming in two or three of those. the market value of the world's negative yielding bonds fell by trillion.eek to $10.7 back in june, we had $12.2 trillion. this tells the whole story going back two years. now for a special conversation with one of the world's best known hedge fund managers. has been inan financial markets for 30 years. he is now accused of insider trading. here he is with erik schatzker.
erik: i would like to welcome viewers and listeners worldwide -- lee, good morning. you are being sued by the fcc. clients are withdrawing from your fund. most money managers would be in hiding right now. why not you? everyone has to act according to their own set of values. if this happens to a 30-year-old with no money, you are out of business. it happens to happen to a 73-year-old who is financially well-off and i value my legacy, i've done nothing wrong. i take comfort from that fact. ken called me up and said that totallye that
resonated with me. i've known you for 40 years, i've been investing with you for 10 years, i know what you stand for. the best $30 million i ever million that$30 don't give them a dime if you've done nothing wrong. this has cost me substantially more than they want me to give them. business,ees and lost astronomical. i've taken sad -- the giving pledge with warren buffett. i want to get my money back to society. with my children and grandchildren and my wife, we started the cooperman college
this will cost me that i could multiply it by fivefold. there's nothing much you can do. erik: people who don't know you the way ken langone knows you will ask this question -- do you as a matter of practice in an effort to produce returns for your investors sale close to the wind? leon: not even close. we are 80 dive fundamental firm. dive are a deep fundamental term. we rely on information. he always told the analysts, if the company gives you something that a significant nonpublic information, urges the company to make a press release. we are looking for insight.
don't make any attempt to outlaw speaking with companies. we are on a level playing field. we do not seek information. i would love to go into the facts, but my lawyer has been muzzled. it's so sad what's going on. go back to that term he used a couple of moments ago, astronomical. in a statement you released earlier today, you said the damage to the firm has dramatically impacted the opportunity for professional growth for my 43 partners and associates. what is astronomical come exactly? what is the scale of the damage? leon: we dropped from $7 million to $4 billion. goldman sachs pulled out. from a wonderful call gentleman who's been with me for 25 years. he said you made me a rich man, please do not retire. do not send me back the money. we are not retiring or sending
back the money. we are working very hard to deliver the returns they deserve. i consider it job one right now to deliver the returns to the investors. hoopla, ourl this credit fund is up 14% this year. , ourspite all this hoopla credit fund is up 14% this year. my job number two is to convince the jury of my peers that we've done nothing wrong. i would be shocked if we don't win. had $7 billion under management and because of this lawsuit, it has dropped to $4 billion? leon: yes. almost all of which was given back to investors. the institutional investors hide behind fiduciaries. they are not prepared to say ready, aim, fire. instead, they are fire, aim, ready. we have a high regard for
goldman sachs, i grew up with the firm. for the 20 years i managed their money, i delivered at a competitive fee and yet, they withdrew. the individual investor, whether or major langone industrial people, they all say the same thing, hanging, we trust you. erik: you worked at goldman sachs for 25 years. you were a partner for 14 years. you ran the asset management. leon: i started asset management. erik: have you had a conversation with goldman? leon: i have. it was a bit disappointing in the sense that they called me down to meet with them and greatt giving myself inflation -- sometimes, you make a presentation, you have a program and you say this was an 11 on a scale of 10.
the next a, they informed me that they were withdrawing. -- the next day. i should not be in a position to say if you are 30 years old and have no money, even if you've -- you fightwrong it. i'm confident when they have all the facts. erik: you don't have to fight. leon: the easiest thing would be to write them a check. i'm not as generous as mike bloomberg, one of my heroes, but i give away about twice what the government wanted to settle annually. erik: what are you giving away a year? leon: about $16 million a year to charity. erik: the sec asked you to
settle for $8 million? leon: it makes no sense. you give money if you've done something wrong. if you've done nothing wrong, give no money. how do you value your reputation and her legacy? erik: for you, this is a matter of principle? leon: unequivocally, yeah. absolutely. it's a matter of principle. i've done nothing wrong. i had a 16 year relationship with the company and related entities. there is no insider trading. i lost a substantial sum of money. i have a norm is respect for my oldest son who runs a hedge fund. investor.rgest -- i have enormous respect for my oldest son who runs a hedge fund. they never said anything to him. erik: did the settlement offer involve more than just money?
leon: they never would have gotten that. forbody told me they asked a lifetime bar on stevie cohen. erik: did they talk about barring you? leon: we don't want to get into that. we are fighting this. --have very confident competent counsel, paul weiss. they look at our training records two years ago. the comment from the lead partner on the case was i no insider trading and it's not here. know insider trading and is not here. why would you give someone $8 million if you've done nothing wrong? that's not my genetic makeup. maybe i'm wrong, who knows? erik: at any point in this investigation, through this investigation because it when the back to 2010
trades happen, if at any point you consider training -- turning america into a family office? leon: i've always looked at omega as a family office. 32% of the capital was general partner capital. starting next year, 50%. i told my investors, this is a blessing for them. believe, hast, i underperformed the s&p in the last decade. investors are looking at a manager that has 50% of their money in capital -- totally aligned with the investor. your great divide that we have outperformed the market for 26 years. there's total alignment of interest.
the problems in the hedge fund industry has been the big guys have gotten too big. we will see how that straightens out. erik: let's talk about your partners and associates at omega. you said in your statement that this case has dramatically impacted you opportunities for them. -- the opportunities for them. painting a $7re billion canvas, the earning opportunity is greater than if you are painting on a $4 billion canvas. there is a reduced economic opportunity. if i have a 2% position in a stock and the 2% of $4 billion as opposed to $7 billion, there's less dollars. i feel sorry for my people who work extreme the, they are very capable and they deserve to have a great trip.
-- my people who work extremely hard. in the system, the losing party payers. cost --, you pay the they take taxpayer money and bring us who like this and i spend a fortune, i will win, but the government enjoys sovereign immunity. are your partners and the police standing by you or are you concerned that some may use this as a reason to leave? leon: so far, i've been extremely gratified. , onecal people came in of which was with me for five , one -- two people came in of which was with me for five just closedthe door the door behind them and said these have been the best five years of my life. but me to tears. erik: you take this personally.
you --hen you -- what wouldn't you? it's crazy. it's not material. -- $47ke a big deal million of a bond in my grandson's account, if you own $150 million worth of stock in a --pany, you make a judgment to buy a bond yield at 9.5% for --r grandson's college fund i'm more interested in what people do with their money than what they have. son, wow did your ayne, and up playing a role -- end up playing a role? leon: we don't know the government's case.
my son is a terrific kid, very confident. i have been to be his largest investor paying him a fee for services. he was short the stock. it was option activity that ran up before the good news came out and he was very upset. i was not long one stock option. we had shorted some options, we with a the options nickel, never went long an option. $34: you lost money leon: million. we had a holding period that goes back a number of years. it's crazy. erik: many years ago, you called the $500 million omega loss on fraud the worst moment of your life. is this worse? leon: i think so.
i'm accused of wrongdoing the other one, we were a -- the wrongdoing was done to us. the character of the firm, i went and personally picked up the phone and called robin to alert him -- erik: the former district attorney from manhattan. wen: i called him and said think we were scammed by this fellow come we don't have the financial resources to trace money movement around the world. we will cooperate with you. he knew nothing about it and call back in two weeks and said we appreciate your call, we are interested in the case. us for our cooperation. that is the kind of firm we are. we operate within the law. the weight you and your lawyers interpret the facts, what you know to be true and believe to be true and why do
you think the government is pursuing this case? leon: i don't know their version. right now, we don't know anything. when we go to trial, we will learn everything and you with it. i know the trading history, i know the results. mark: you don't think there is motive -- all interior motive? leon: there is a negative attitude towards wealth in this country. i don't want to be too inflammatory -- there's a couple ifbooks i brought along -- viewers are interested, they can read them on their own. one is called pre-selling today by harvey -- this one, license to live by cindy howell -- lie bys to -- license to cindy howell. i'm confident i'm going to win. erik: you reject insider
trading. some call it a victimless crime. you have insider information, you should not use it. absolutely. when i ran goldman sachs research, we told the analysts if a company gives you nonpublic information, encourage them to disclose it. we are not in the insider information business. we are an insight business. erik: are you worried about the insider trading case currently before the supreme court and what it would mean for you personally at that conviction were upheld? leon: everybody asked me about that. statement onin the september 21. leon: i know nothing wrong was done. from $44 to stock
$10. a terrible job of risk management. but basically wrote it down because the management said we will fix the problem, fix the problem, fix the problems. never told me thenever told me f their fix. why do you hold the stock from $44 to $10? you believe management from the street and put him analyst input and we were dead wrong. -- mark: let's talk about returns. they were good this year. a lot of hedge funds are struggling to make money. how's it working for you? leon: we've done very well in credit. i've had a couple difficult years. a low volatility environment. money is flowing into -- there's been a real skewing of valuation.
we were talking during the pre-hours, having high regard for everything that caroline writes at "fortune" magazine. she edits the warren buffett report. titledte an article "hard times come to hedge funds." you will see the dateline -- january of 1970, the second-largest was $30 million, the entire industry was under $1 billion and today, it's somewhere between 2.5 entry -- $2.5 trillion to $3 trillion. money is leaving the industry. how do you accept 14% in credit? leon: you are getting a lot of
debt and equity and off the run kind of inventory. they've done an excellent job for several years. with credit spreads that of tightened. -- that have tightened. i'm sorry there earning opportunity is less. they got tainted. you are guilty until proven innocent. the america i learned about is you are innocent until proven guilty. erik: how about your equity portfolio? leon: we are mildly constructive. erik: you think stocks could continue rising? leon: the world is turned upside down. unequivocally. in many respects politically and on politically. president obama massively made romney's wealth a liability. today, you have donald trump
stating his wealth and the public is eating it up. switzerland sold 50 your debt and negative interest rates. give me back less than a giving today 50 years from today and i'm happy. japan, negative interest rates, germany, negative interest rates. if family living in a home in denmark gets a check every month for living in a home because of a negative interest rate on their mortgage. it's crazy. it defies all history we've learned. i try to say to myself, what is normal? i think what is normal is something like the labor force growth at .5% a year, productivity rose 1.5% a year. that the fines real growth, 2%. nominally growing economy, where should interest rates be?
i think fed funds ought to be 2%. we are dealing in a global economy. the multiple on the s&p is 17 times. around 21.45.e erik: thank you for spending time with me. has lots ofan reasons to frown but when he talks about investment, you can see the smile on his face. vonnie: fascinating interview. more "bloomberg markets" straight ahead. ♪
that brown, is it? ames. is a chilly th uk prime minister theresa may .ays grexit brexit a london court will decide if it is up to her to decide when the united kingdom leaves the european union. 50 ofay trigger article the treaty, which starts an exit without approval from lawmakers. it would force the issue in the house of commons and house of both were which were largely pro-eu -- aid for victims of hurricane in haiti. not fast enough. the humanitarian agents he has
made an appeal for $120 million in aid, saying 750,000 people will need "life-saving assistance and protection in the next three months." visitingr merkel is ethiopia, meeting with the prime minister on issues including the newly declared a state of the. ethiopia is one of the largest with thousandses having fled from somalia and sudan. former vice president al gore is hitting the campaign drove with hillary clinton in south florida. bettinnton campaign is on al gore's climate change activismg to woo young voters and prevent them from voting for a third-party candidate. president obama wants the u.s. to take a leap to march. the president writes for cnn that the u.s. is partnering with private companies to send humans
to mars and back by 2030. the ultimate goal is remaining on the red planet for an extended time. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. thank you. the british pound falling for a fourth straight day on concerns over hard brexit. this comes on the wheels of concerns of markets dominated by can peter-driven algorithmic traders are leaving tomorrow these events. ofning us is the chairman the u.s. commodity futures trading commission. thank you for joining us. i want to show a chart in the bloomberg. number 4150 in the library showing volatility spiking at the time of the crash last friday. has the cspc looked into what caused the event?
>> we are looking at this. i will not go into details as to where we are, but we have seen events like this in a number of products. we saw it with the treasury market two years ago. a lot ofeen it in products in the markets because the nature of trading in markets has fundamentally changed. markets is trading automated. 70% on average across all products. that has brought significant changes as to how people trade and what happens. that is why we have been focused on trying to make sure that we have reasonable tracks and can -- reasonable checks and controls the proprietary trading
has checks on their own algorithms to make sure they do not cause disruption. that is why we have to enhance our looking at events like this. vonnie: the cftc proposed a role a year ago. why does that -- why has that not been improved question -- not been approved? vonnie: it takes time because we want public comments and to make sure it is sensible. we will probably come out with a supplemental proposal shortly. it will still take time to get it done, but that is the nature of the public comment, rule-making process. mark: how likely is it the room will be approved before you step down before the end of the obama administration? tim: we'll have to see. we hope to come out with a supplemental proposal. we will invite comment on that. that takes a few months.
then, we have to review the comments. we are making good progress. this is an area i have made a priority. it takes time because we want a good public comment process, making sure everyone has the opportunity to give thoughts. it is a complex area. --k: the growing role of al of automated algorithmic trading has made for the turbulence we saw in the pound on friday more likely. what does that do to trust in the market? tim: it is more of a matter that we have to understand the nature changed.s has sometimes people say there is no liquidity. there is. there is a lot of liquidity. the way liquidity is provided is different. we do not have the traditional market maker who got all of the buy and sell orders. no one else knew then.
that market maker stood there when prices were falling rapidly , as they used to say, that market maker would catch the proverbial following -- proverbial falling knife. that doesn't happen today. we have machines going at a fast pace, often quoting on smaller increments but both sides, buy and sell. may be changing those programs are the microsecond. vonnie: there is industry criticism that your proposal would put trader secret, their secret sauce, at the risk of being hacked. that they would have to turn over any information for investigators. how do you propose changing regulations in the works to counter that? tim: we are thinking about that. let me clarify our objective. it was never to require trading
firms give their source code. what we want is that source code preserved, number one. that source code is the code that dictates how an algorithm performs. if there is a market disruption look atem, you need to the source code to figure out what happened. number one, we want to preserved. number two, we want access to it when we need to look at some sort of problem. we will do that in a way that ensures confidentiality. i'm committed to having a role that respects and preserves the confidentiality of the source code while ensuring that we have access. today, that is an important record. we have got to have the ability, when we need to, to look at it. we will make sure to take steps to preserve confidentiality. mark: what about the rule of limits on trading firms on the
amount that they speculate in the markets that you oversee? where are we on that side? tim: hoping to finalize that one by the end of the year. we're working hard to do that. that is the positions limit rule. we're working on fronts. one is to make sure we have the most current data to set the limits. the limits are based on what is the estimated deliverable supply of the underlying is a coproduct. that has changed dramatically in markets over the years. we're working hard to make sure estimates are correct, and to address issues like bona fide hedging. vonnie: we will follow the progress closely. we hope you get there before you need to step down. tim massad, thank you for joining us. tim: thank you, very much. mark: samsung kills off its note 7 smartphone after the second round of battery fires.
vonnie: you are watching bloomberg. i am vonnie quinn. mark: i am mark barton. this is your global business report. gearing up for the world's biggest ipo. where would it have its shares? vonnie: estimated earnings, high-end goods. , the in today's quick take u.s.-israel relations. the ceo of saudi aramco says no market is off the table as they plan for initial public
offerings. this thing is going on. , all the be going on groundwork is being done. , prices are coming. there will be more in the future. final decision on the ipo size will be made later. final decision on the ipo size will be made later. mark: the bank of shanghai will raise $1.6 billion in the initial public offering to raise capital. the bank will sell shares at $2.65 each. the shanghai lender is a wave of smaller banks raising money to fund expansion as regulators close loopholes allowing so-called shadow lending without capital or provisions. supporting revenue beating estimates for shoppers in the u.s. and asia snapping up at the
handbags and louis vuitton perfume. the luxury goods maker saw sales rise to 1.2 billion dollars, d salesr than expecte for fashion and leather goods. ad with not go ahe oil exploration five years after it started looking for resources in the area and before it drilled wells. the energy producer says the decision to step away follow the review of the upstream strategy on what was influenced delayed in getting the plan approved by regulators. vonnie: it is time for our bloomberg quick take where we provide context and background. the u.s. and israel are as close as any two countries. looking at the relationship, two countries build by immigrants, principles, and
refreshing informality. the relationship between leaders has been strained under president obama and prime minister netanyahu. they reached a low point in 2015 when prime minister netanyahu encourage congress to kill a deal with the u.s. that other world powers signed with iran over the nuclear program. u.s. officials have been unusually harsh on the criticism of israeli settlements in the west bank, which palestinians hope to make the heart of an independent state. provide $38 to billion in military aid over 10-years. for the first two-decades after the birth in 19 88, israel is not a close ally -- in 1938, israel was not a close ally. france, in conflict with nigeria, helped israel develop
nuclear weapons. the u.s. drew israel close because of cold war calculations. critics argue the pro-israel lobby skews u.s. foreign policy away from the national interest. by reducing israel's need to make compromises, u.s. support for its anti-americanism and militancy in the mideast. fans of the relationship they it has achieved the goal of ensuring relative stability in the oil-rich region by preventing the outbreak of a major war. you can read more on all of our click takes on iquick on the bloomberg. go to bloomberg.com for more stories. tumblingsung shares after they ended production of smartphone.ote the announcement coming off of samsung trying to solve problems of phones overheating and catching fire. joining us is cory johnson, who covers technology in san
francisco. how do samsung dig itself out of this hole? cory: the whole is considerable. first you have to measure the hole. as we approach, this is a bad time for samsung. the note 7 is their second most important device of the company. most of the profits are derived from the sale of smartphones. bading at the timing, it is news. they came out with a phone that was initially met with strong sales. they rushed it out to get it ahead of the new apple 7 devices and the announcement of those devices. at the same time, they wanted to be ready for the fourth quarter, just weeks away. 28% of smart sales happen in the lifth quarter as a popular items. beyond that, contracts to do and there or start there.
a lot of people looking for new phones, eligible for subsidized phones were that happened. benefitwas expected to from q4 sales, now they will not have rush product on the market for the all-important q4. mark: what is the reputational damage when it comes to samsung and smartphones? .ory: that remains to be seen one could expect it to be significant. they're missing an entire product cycle. a phone that really competes with the apple seven plus. the larger phones, the phones that cost $700 or more, 98% of the share goes to apple and samsung. those who want the new phones are looking at a brand-new iphone with the 7 plus and nothing from samsung or other competitors at the high-end on the large size. going down, there are competitors looking to gain market share.
that is one thing i will be looking for. will the push from wall way really pull down the profit margin? they're willing to make less on or500 phone than them some apple. will one product cycle at lower margin means everyone else will have to match that going forward and the margins will squeeze for everyone else? vonnie: are the companies able to ramp up a more expensive phone and get it out quickly. whoof our producers people like samsung usually don't like apple and would not make the switch. cory: what the numbers have shown is the customers that switch from android apple is more likely to stay than the company that leaves apple to join android. it is true they have their own for applethe camp
users has a higher wall. the develop rent cycle at best -- the development cycle at best is 18 months. it also raises questions about the samsung alex c. can samsung rush out the new galaxy, or can they say we becauseush anything out the last time he rushed something out, it blew up. vonnie: thank you. cory johnson in san francisco. mark: still ahead, oil trading near 15-month high over uncertain before supply cuts. we will hear from the iea executive director. this is bloomberg. ♪
year if turning outflows is implemented. i understood that the producers of opec countries and russia are discussing to have an agreement in terms of the oil production prospects, cutting or freeze. hear statements from them soom. t -- from them soon. this would affect markets. ramped up a couple of dollars. agreements would push prices up. having said that, one needs to take two factors into consideration. one, higher prices. what would be the impact of this
process on the very fragile oil and?dem last year oil demand increased by 1.8 million. this year, we expect without this price increase 1.2 million, a significant decrease. expectprices, one may demand to be slower. efficiency improvements. this is number one. number two -- >> good morning. it is manus alongside anna. we heard what you said. the most important thing for the markets to understand is we understand that the russians would prefer a freeze rather than a cut. you think we need a cut to move the price to a new level? you mentioned higher prices. do think it could get to $60? in what time period?
whenwould not speculate and how much. the second point i wanted to highlight, not american producers are watching this debate closely and will make investment decisions. when the prices reach of those , wels, in six months or so will see automaker production increase putting oil in the markets. this decision, cutting or freeze, and pricing afterwards quicker oil demand growth and higher production growth for north america, which could have significant consequences for the oil market. to see?do you want
a cut or a freeze, and at what levels? them.is up to our colleagues from opec and russia to decide. the key is to think about the consequences of cutting or freezing the production. the process should be determined by the market forces, supply and demand, rather than having intervention in the markets. vonnie: from the world energy congress in his temple. london, 10:55 in new york. markets growing on prospects of a federal reserve rate hike this year. check out our work function to see how expectations are increasing. that is weighing on markets. by .3%.rope 600 down
the ftse is a fascinating case study, rising above the record 7.10 three is the level to watch out for. --are at 7000 zero 7083. look at what is happening in the currency market. sterling against the dollar, down for the fourth consecutive day. 1% lower. 122. that is after the fall on friday flashed by the 6% crash.
close" on "bloomberg markets." mark: we will take you from washington to moscow. stories also out of london, new york, and south africa. here is what we are watching. wages, theoosting federal rates increasing on december at the same time that strategists say we could see a pullback in the ftse 100. we will discuss it with that asset manager. vonnie: goldman sachs says the reason to cut oil production is more profitable. jeff curry tells us why we will not get answers until the spring. south africa's rand tumbling since june.